All posts tagged Strategic Default

Not all of the “sand states” are equal when it comes to the share of borrowers who are behind on their mortgage loans.

Associated Press

A new report out Thursday from real estate services provider Zillow found that while Florida is not the worst state for negative equity, the Sunshine State’s borrowers have disproportionately high delinquency rates on their loans.

In Miami-Ft. Lauderdale, 43.7% of borrowers are underwater, while 24.9% of them have missed at least three months of payments. In Tampa, where 46.6% are underwater, 17.6% haven’t made payments for three months. In Orlando, it’s 51.9% underwater and 18.2% delinquent.

Compare that with Phoenix, where 51.6% of borrowers are underwater, but only 8% are seriously delinquent, or Atlanta, where 54.4% are underwater, but only 7.8% are seriously delinquent. Even lowly Las Vegas, where a whopping 68.5% of borrowers owe more than their home is worth, only 13.6% are 90-days delinquent. (Zillow’s delinquency figures — which come from credit rating firm TransUnion – jibe with the Mortgage Bankers Association’s figures.) So what is it about Florida? Why are so many more of the state’s borrowers delinquent on their home loans when fewer of them are underwater? Read More »

Anti-bank demonstrators this month launched an “Occupy Our Homes” campaign, using a handful of highly publicized foreclosure cases to force banks to drop their efforts to evict homeowners nationwide. But does the Occupy movement have it backwards?

Civil disobedience that aims to force lenders to the bargaining table over toxic mortgages might be better served by a “De-Occupy Your House” movement, writes James Surowiecki in this week’s New Yorker. Mr. Surowiecki offers a cutting polemic in favor of strategic default, contrasting American Airlines corporate bankruptcy filing with banks attitudes towards the morality of making mortgage payments:

When it comes to debt, then, the corporate attitude is do as I say, not as I do. And, while homeowners are cautioned to think of more than the bottom line, banks, naturally, have done business in coldly rational terms. They could have helped keep people in their homes by writing down mortgages (the equivalent of the restructuring that American Airlines’ debt holders will now be confronting)…. Read More »

Fannie Mae’s announcement last week that it would seek tougher penalties against borrowers who walk away from homes when they have the capacity to pay has sparked all types of outrage.

The company said it would step up efforts to pursue deficiency judgment—seeking to recoup the difference between the loan balance and the net proceeds of the foreclosure sale—against so-called “strategic” defaulters in states where such suits are allowed. Fannie also will lengthen to seven years, from five, the amount of time borrowers who go through a foreclosure must wait before getting a new loan.

Many are asking the same question: How will Fannie determine whether borrowers default when they have the capacity to pay?

The answer can be found in this lender bulletin Fannie issued last week. Any borrower who can’t demonstrate hardship, an effort to seek a workout with a lender, or other “extenuating circumstances” that prompted the foreclosure will be subject to the longer waiting period. Those who do supply such proof will see a waiting period of as little as three years. Read More »

At what point do borrowers who owe more than their homes are worth decide to stop paying the mortgage?

A new study from economists at the Federal Reserve Board aims to answer that question. The research found that the median borrower who “strategically” defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.

The study is bad news for the mortgage industry in that it backs up the idea that a growing share of borrowers are walking away from loans. Concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford.

But the silver lining here is that it suggests a rather high threshold for borrowers to walk away. Read More »

A new report estimates that nearly one in five mortgage defaults through the first half of 2009 were “strategic,” where borrowers who appeared to have the capacity to pay their mortgages stopped doing so.

The research follows on an earlier report by Experian and Oliver Wyman that first aimed to quantify the share of mortgage defaults that are “strategic.” Strategic defaulters are defined as those who miss six straight mortgage payments without missing multiple payments on auto loans and other consumer debts for the six months after they first fell behind on mortgage payments. Read More »

WSJ.com columnist Brett Arends has advice for an Illinois man who is underwater on a mortgage and unsure about whether or not to abandon ship. He and his wife are current on payments, but will likely fall behind when their adjustable-rate mortgage resets in about a year. They considered a “short sale,” selling the house for less than is owed on the mortgage, but the lender said it would come after them for the shortfall.

So, I am considering just letting the home go to foreclosure, saving my money, paying off other smaller debts (such as credit cards, and car loan), but am hesitant. I want/need to do the right thing fiscally for my family, but am wavering on the fence as to just take the plunge or not in a strategic foreclosure.

Mr. Arends offers up a few things to consider before simply fleeing the home, including the federal government’s modification program (even if, as we’ve written, it has had underwhelming results.)

The column also offers considerable detail about filing for bankruptcy… Read More »

Many people weighing the option of walking away from home mortgages are nagged by this worry: Might the lender come after me and try to grab my car, savings or any other assets?

The answer, according to Sanjiv Das, CEO of Citigroup Inc.’s CitiMortgage unit, is a resounding … well, er … maybe, if you are an investor and live in a state where the law gives mortgage lenders recourse to your other assets.

“We believe that it would be a good deterrent” for people who can afford to pay off their loans but choose not to because the home value has plunged below the balance due. About 21% of U.S. households with mortgages are in that “under-water” situation, according to Zillow.com.